‘People are Now Ready to Pay a Premium to Fly with Vistara’
Vistara has managed to fill a higher percentage of seats in the economy class than any other airline in the country while charging higher fares on average, said the full-service airline’s chief strategy officer Sanjiv Kapoor. He told Mihir Mishra in an interview that people are ready to pay a small premium for flying with the airline. Edited excerpts:
How has Vistara fared during its second year of operations? We are on a measured growth plan. We are adding four aircraft in 2017 and we may add five aircraft next year. In 2016, our network grew significantly. We added four aircraft and grew our fleet from nine to 13 aircraft, a 45% increase. But we have aggressively expanded on the number of flights with the same fleet, which has grown 80%. That also says how aggressively we have increased our fleet utilisation, which is now approaching 13 hours a day. We are pleased with this performance, as we have achieved this number despite being a full-service carrier and without the benefit of international night-flying.
The load factor for December was 85.1% and January (the aviation regulator’s official report for January is yet to be released) and February are also turning out to be the same. Our economy class load during December was in the range of 94%, which is higher than anyone else’s. I agree that we have a lower number of seats in the economy section of our Airbus A320s and it’s easier to fill them, but we do not have the benefit of smaller 70-seat aircraft either, which are even easier to fill. Overall load of 85% means our premium classes are also getting filled. Both business and premium economy segments are filling up. A lot of questions were being asked about premium economy but that has become a key differentiator for us now and a lot of corporates have started asking for premium economy.
Often Vistara flight tickets are cheaper than that of the low-cost carriers. Are you filling your planes by offering cheaper fares?
ON LOAD FACTOR
Our average fares are, of course, higher than LCCs. Even our average economy class fares are higher compared to our low-cost peers. Notably, our average fares have been increasing every quarter. We have achieved 94% load factors by filling our planes on the back of a strategy. Our past record shows that a certain percentage of seats are filled within 30 days of the flight and that percentage does not change much. The rest of the seats, we want to sell as much as we can in advance because seats are perishable, and cannot be put back on the shelf and sold later after the aircraft departs.
The other thing that it does is that the earlier you achieve the base load factor the number of distressed seats to be sold at the last minute are less. Hence, our average fares go up because the ability to charge higher fares is much more for the remaining seats for last-minute passengers. Our yields are getting superior to our LCC peers. Our revenues are rising and costs are decreasing and both these metrics are heading in the right direction. Vistara is not number one in terms of on-time performance anymore. Is that a concern for you? We were number one for a long time in terms of on-time performance despite being Delhi-centric, where ATC congestion is high and where fog impacts operations during the winter months. We are aware that we have lost our number one slot in this fog season and we are internally working to regain our position.
Fuel prices have started inching up and that is going to increase pressure on airlines. Do you think the lower fare regime is set to end? Pricing discipline is starting to return. Crazy pricing was happening even last minute earlier but rising fuel prices have brought some pricing discipline. Due to lower fuel prices, we were giving away the pricing power on tickets being booked last minute.
The trick is to offer attractive prices for early bookers and charge more closer to departure for less price sensitive travellers. If the industry is successful in raising fares by 30-40 cents every time oil prices go up by one dollar, I think we will be OK so long as oil prices remain in a reasonable range.
Do you think capacity constraints at airports will impact aviation growth? I think much of the capacity constraints at airports like Mumbai, Bengaluru and Delhi will be addressed between five and seven years from now. The other large airports are also working to increase handling capacity.
But an equally big problem is the capacity constraints at smaller airports like Goa and Pune, which are dual-use airports and there is no scope for any addition of flights at these airports. Looking at the expansion, I am also worried about how these planes will be absorbed and even bigger question is the parking bays at these airports.
If the infrastructure issues are not fixed and airlines are not able to add aircraft and market keeps growing, fares will go up, which will not be good for consumers and the country too.
Is Vistara planning to go in for a mega aircraft order? I think Phee Teik Yeoh (Vistara CEO) has mentioned this in interviews. We are working on a long-term order and international (operations) is in our plan. I do not think you will see any 400 or even 200 aircraft order from us. But the order, whenever it happens, will be a meaningful order.